Melvin Capital closed its short position at GameStop on Tuesday afternoon after suffering a heavy loss, fund manager Gabe Plotkin told CNBC’s Andrew Ross Sorkin.
The video game retailer, the most hated material in hedge funds, was targeted by an army of retail investors who faced short sellers in online chat rooms. On the Reddit forum, “wallstreetbets” with more than two million subscribers, novice investors encouraged each other to stack up on GameStop’s equity and call options, creating huge short compressions in the name.
CNBC was unable to confirm the amount of losses the company incurred in the short position. Citadel and Point72 have donated nearly $ 3 billion to Melvin Capital to bolster the fund’s finances. Plotkin told Sorkin that speculation about the company’s bankruptcy would be false.
GameStop shares have doubled more than just this week, to nearly $ 150 a piece, up 685% from January. The shares were worth just $ 6 four months ago.
GameStop shares gained about 60% in premarket trading on Wednesday, after appearing more than 100% earlier in the session.
Amid GameStop’s explosive rally, short sellers have amassed losses of more than $ 5 billion a year so far, including losses of $ 917 million on Monday and $ 1.6 billion on Friday, according to S3 data Partners.
Short seller Andrew Left of Citron Research said Wednesday he has covered most of his short position at GameStop with losses. Previously, he said GameStop would return to $ 20 per share “quickly” and summoned the attacks from the “angry mob” that owns the shares.
Investor Michael Burry said in a now-deleted tweet Tuesday that trading with GameStop is “unnatural, crazy and dangerous” and that there should be “legal and regulatory repercussions.” Burry gained fame by betting on the real estate bubble and appeared in Michael Lewis’ book “The Big Short.”
The U.S. Securities and Exchange Commission declined to comment.
Social Capital Chamath Palihapitiya jumped to the controversial name, saying in a tweet on Tuesday that he bought GameStop call options betting that stocks would rise. His tweet seemed to intensify the concentration of the previous session. Shares ended the day up 92%, to $ 147.98.
Elon Musk, after the bell, commented on the craze on Twitter on Tuesday and related to Reddit chat room “wallstreetbets.” Tesla’s CEO tweeted to his 42 million followers “Gamestonk !!” The comment came in to help send GameStop shares soaring during extended trading on Tuesday.